Nordic food markets : a taste for competition.

Abstract

International price comparisons are loaded with empirical diffi culties. However, the Working Group concludes that the prices consumers in the Nordic countries pay for food and beverages are higher than the European average. One reason for this is a higher level of taxes (VAT and excise duties) on the production and sale of food and beverages (soft drinks and beer) than in the rest of the EU. But even without taxes food and beverages prices in Denmark, Finland and Sweden still remain 6-12 per cent (7-11 per cent exclusive alcoholic beverages) higher than EU15 (2004). Iceland and Norway are not members of the EU and maintain tariffs on their import of agricultural products. This seems to be a major reason why food and beverages prices in Iceland and Norway are much higher – 42-47 per cent (34-36 per cent exclusive alcoholic beverages).

Nevertheless, the price gap between the Nordic countries and EU15 has narrowed in recent years. Since 1999 consumer prices in the Nordic countries have on the average grown 3 per cent less than EU15.

The Working Group concludes this development is evidence of enhanced competition on Nordic food markets. Nevertheless, the remaining price level differences suggest that there is still considerable room for improvement.

Next, the study conducted by the Working Group suggests that the assortments of food products available in supermarkets in the Nordic region are a great deal smaller than in the south of Europe (i.e. France in the present study). This is partly due to smaller average sizes of food stores in the Nordic countries and also that retail outlets of comparable size offer the consumers a more limited choice in the Nordic countries. A study initiated by the Norwegian Agricultural Cooperation from 2005 shows results which are somewhat different. Both studies are based on limited samples of supermarkets, 4 supermarkets in the Norwegian study and 36 in the study initiated by the Working Group.

Higher prices may indicate that competition in the Nordic countries is less fierce than in the rest of the EU so that production, distribution and sale of food products in the Nordic countries demand more resources, higher wages or other costs, profi ts (or, most likely, a combination hereof). The smaller assortment of products means that consumers are offered less diversity and variety of food products and that there are fewer opportunities for suppliers to get their products on the shelves in the supermarkets.

Several Nordic food companies do well on the international markets and have built up large export volumes. Part of this success has been achieved through locating the manufacturing of products where costs are low. In this way they have been able to compensate for the high cost level in the Nordic countries.

One reason behind the high food prices and the narrower food supply seems to be the high concentration on both supply and retail level in the Nordic region. The market shares of the leading suppliers in some of the largest food categories are higher in the Nordic countries than in, for example, Germany, France or the UK. The strength of the suppliers has, however, to a large extent been counterbalanced by the growing power of the large retailing groups. Today, concentration at the retail level in the Nordic countries belongs to the top end compared to other European countries.

Large companies on the supply side and among the retailers makes it possible to obtain low costs as they realise large-scale effi ciencies. However, in order to ensure that such advantages benefi t the consumers through lower prices and development of new products, it is essential to have a competitive environment.

To achieve this, access to the market must be ensured at all levels, including access for new shops and new supermarket chains. The most successful chains in recent years have been discount markets and hypermarkets. The fi rst have a profi le of low prices, but a very limited food assortment. The latter try to attract customers through their large selection of products, incl. food, and price reductions on selected products. Thus, the Working Group concludes that the existence of different shop types may ensure low food prices as well as a wide and attractive range of products.

Next, it is not possible to ensure access to the shop shelves for all producers of food products.

However, the Working Group concludes that it is important to ensure that dominant suppliers and retailers do not restrict entry to the supermarket shelves for smaller suppliers. Consumers in all countries have traditionally been slow to change their food habits. However, an increasing number of consumers take an interest in products that meet certain high standards of ethical values (animal welfare, organic breeding, etc.). In order to get access to the market for products with such qualifi cations the Working Group concludes that it is important to have a system with objective labelling for such values which the consumers have confi dence in. Moreover, consumers’ access to objective and comparable information on food and food prices is important to ensure progress towards the best food competition standards in Europe.

Access to the market also extends to entry of food products from abroad. Food production and sale are heavily regulated to protect consumers’ health and welfare, and specifi c regulations in each country mean extra costs on imports from abroad.

The sale of food is also regulated to protect the environment and such regulation has implication for the market access too. Each of the Nordic countries has established its own separate deposit and return system for the collection of empty bottles and cans for beverages which the suppliers must adapt to when exporting beverages to neighbouring countries. None of these systems, however, ensure the collection of empty containers imported from abroad by the consumers. For a fully integrated market the Working Group, therefore, concludes that initiatives allowing the exchange of deposits for cans and bottles among the countries are necessary.